TITLE
Recommendation to adopt resolution to authorize issuance of 2005 Long Beach Bond Finance Authority (LBBFA) Limited Obligation Improvement Bonds (2005 Earthquake Bonds) in an amount not to exceed $5.6 million to refinance the 1997 Limited Obligation Revenue Bond, approve waivers to City Investment Policy as stated in resolution in regards to investment maturities; and authorize City Manager to execute all documents. (Citywide)
DISCUSSION
In 1991, the City Council authorized the issuance of $17.4 million of Earthquake Repair
Assessment District No. 90-3 (AD 90-3) conduit bonds to enable property owners to make
necessary seismic repairs by allowing an annual assessment levy on their properties. In
1997, the AD 90-3 bonds became at risk of default due to a high level of property
delinquencies driven by the real estate recession. To prevent a default and protect the
City's reputation in the financial markets, the City Council approved the 1997 restructuring
of the AD 90-3 bond issue.
On June 24, 1997, the City Council authorized the formation of the Long Beach Bond
Finance Authority (LBBFA), a joint powers authority between the City and Redevelopment
Agency (Attachment). The LBBFA was established to issue bonds under the Marks-Roos
Local Bond Pooling Act of 1985. Concurrently, the City Council authorized the
restructuring of the AD 90-3 bonds, and the purchase of certain of those bonds issued by .
the LBBFA as an investment by the City.
The 1997 transaction restructured the original bonds by splitting the transaction into
Series A and Series B bonds. Series A bonds were secured by properties whose
assessment payments were current and had a strong record of prompt payment; this
series was sold to outside investors. The Series B bonds were established for the bonds
associated with those non-performing properties; those bonds were purchased by the City
at a discount and were secured by properties that were in default. The Series B debt was
managed by the City Attorney's and City Treasurer's Offices; delinquent assessments
were pursued to prevent the City from incurring a loss.
2005 LBBFA Limited Revenue Bonds (Assessment District No. 90-3 Refinancing)
The 2005 LBBFA Limited Obligation Revenue Bonds will refund the 1997 Series B Limited
Obligation Revenue Bonds debt. Since 1997, the assessment district delinquency rate
has declined from approximately 40 percent to 25 percent, and in aggregate the interest
earnings in lien sales have provided exceptional returns on the City's investment.
As a result of the City Attorney's successful collection efforts related to the non-performing
properties, the cash flow from the Series B properties allows the City to market most of
the remaining debt.
This 2005 LBBFA bond issuance will not exceed $5.6 million and it will generate
approximately $3.1 million in net cash proceeds, from which the Subsidence Fund will be
repaid for its investment of $2.6 million and the General Fund will be paid approximately
$546,345 for insuring the original transaction. Approximately $1.9 million of new Series A
bonds will be issued at a par and secured by properties whose assessments payments
are current. The new Series B bonds will be Capital Appreciation Bonds (CABS) and will
be discounted for current delinquencies. These discounted bonds have an additional
potential cash flow of $2.6 million through maturity, from delinquencies brought current.
City Council is requested to approve waivers to City Investment Policy as stipulated in the
attached Resolution to facilitate this bond transaction.
This report was reviewed by Chief Assistant City Attorney Heather Mahood and Budget
Management Officer David Wodynski on June 1,2005.
TIMING CONSIDERATIONS
City Council action is requested on June 14, 2005, as interest rates are projected to rise
and a delay could result in the bonds being issued at higher interest rates thus reducing
projected savings.
FISCAL IMPACT
The anticipated savings to the City from this refinancing is approximately $3.1 million, of
which $546,345 will accrue to the General Fund, to help meet the goals of the Three-Year
Financial Strategic Plan.
SUGGESTED ACTION
Approve recommendation.
BODY
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Respectfully Submitted,
MICHAEL A. KILLEBREW
DIRECTOR OF FINANCIAL MANAGEMENT